The Compact for a Balanced Budget

George Will writes of a new state-based initiative to amend the U.S. Constitution to regain control over the federal government’s spending:

From the Goldwater Institute, the fertile frontal lobe of the conservative movement’s brain, comes an innovative idea that is gaining traction in Alaska, Arizona and Georgia, and its advocates may bring it to at least 35 other state legislatures. It would use the Constitution’s Article V to move the nation back toward the limited government the Constitution’s Framers thought their document guaranteed.

The Compact for America is the innovation of the Goldwater Institute’s Nick Dranias, who proposes a constitutional convention carefully called under Article V to enact a balanced-budget amendment written precisely enough to preclude evasion by the political class.

Here is the text of the proposed Constitutional amendment:

Total federal government outlays shall not exceed receipts unless the excess of outlays is financed exclusively by debt, which initially shall be authorized to be 105 percent of outstanding debt on the date the amendment is ratified. Congress may increase the authorized debt only if a majority of state legislatures approve an unconditional, single-subject measure proposing the amount of such increase. Whenever outstanding debt exceeds 98 percent of the set limit, the president shall designate for impoundment specific expenditures sufficient to keep debt below the authorized level. The impoundment shall occur in 30 days unless Congress designates an alternative impoundment of the same or greater amount. Any bill for a new or increased general revenue tax shall require a two-thirds vote of both houses of Congress—except for a bill that reduces or eliminates an existing tax exemption, deduction or credit, or that “provides for a new end-user sales tax which would completely replace every existing income tax levied by” the U.S. government.

Nick Dranias translates the legalese of his draft amendment into English for how it would work:

... the Compact uses an agreement among the states to advance and ratify a powerful balanced budget amendment. The amendment would limit spending to cash flow from taxes except for borrowing from a constitutionally-fixed line of credit—to handle cash flow volatility and emergencies.

To ensure that line of credit is not abused, the core of the Compact’s amendment is a requirement of outside oversight for any proposed increase in the federal debt. Specifically, any increase in the federal debt limit would require approval from a referendum of the states.

By design, the Compact makes the goal of achieving a balanced budget amendment obtainable—not an armchair pipe dream. The Compact transforms the amendment by convention process into a “turn-key” operation, allowing the states to agree in advance to everything it involves – from the text of the proposed amendment, to the application to Congress, to delegate appointments and instructions, to the selection of the convention location and rules, to the ultimate legislative ratification of the amendment. This cuts the number of enactments needed to get the job done under Article V of the United States Constitution by more than 60%. It also prohibits the oft-cited fear of a runaway convention.

With this powerful balanced budget amendment in place, Washington would no longer have the ability to set its own credit limit and write itself a blank check.

The most interesting part of the proposed amendment is the method by which it might be enacted – using a method that was provided for in Article V of the U.S. Constitution, but which has never been utilized: a convention of two-thirds of the state legislatures. That approach would effectively limit the Constitutional Convention to just the issue at hand: drafting an effective balanced budget amendment, which would nearly eliminate the potential for a complete Constitutional rewrite, which would be a risk in a general Constitutional Convention.

Looking at the proposal itself, there are things to like and things not to like.

Starting with the things to like, the proposed amendment properly focuses on the federal government’s spending (outlays) as the benchmark for establishing how much the national debt would be authorized to change from one budget year to the next. This is a good thing because the federal government has full control over how much it spends (despite any claims of bureaucrats and politicians to the contrary!) What it doesn’t have is full control over its revenue, which can fluctuate greatly from year to year as the economic health of the nation changes.

The control mechanism is interesting. When adopted, it automatically resets the national debt ceiling to be 105% of the current national debt. But once the national debt level rises to be within 2% of that limit, the President has to specify spending cuts to keep the national debt from rising above that level, which have to be implemented within 30 days, unless the U.S. Congress acts to approve different specific spending cuts of an equal or greater amount.

Unless the federal government’s receipts from taxes and fees rise enough to create more spending room. As long as the total amount of spending stays below 98% of the constitutional national debt ceiling, elected officials would largely be free to spend money as they see fit.

To prevent a tax-hike free-for-all that would potentially enable a government spending free-for-all under the terms of the proposed amendment, a two-thirds vote for new or increased taxes in both houses of Congress would be required.

The part that’s not necessarily so likeable, certainly from the perspective of U.S. taxpayers, would be the easier-to-reach threshold of a simple majority vote to eliminate tax deductions, exemptions and credits, which would likely become the preferred means for the federal government to increase its tax collections if the proposed amendment were added to the U.S. Constitution in its current form.

Also not necessarily so likeable is the provision that promotes an “end-user” sales tax. In effect, this is really a value-added tax which, if it really fully replaced all income taxes, is something that could be pretty desirable. In practice however, it would have its own set of advantages and disadvantages.

But because the proposed amendment doesn’t outright repeal the sixteenth amendment, which is what permits the federal government to collect income taxes in the first place, there’s little chance of that transition occurring, as most politicians will be unwilling to give up access to the money that they believe they can reliably collect through income taxes.

And that would be the thing that hangs up the proposed amendment for balancing the budget from getting the state-by-state consensus needed to move forward. A more tightly focused amendment would likely stand a better chance at success.

By linking to Amazon.com from this page, Independent Institute earns referral fees of 4% to 15% from whatever you buy. Bookmark the above link and you can support the Institute when you do your normal shopping!